The The Bezeq EraBezeq Era
December 2015 Forward-Looking Statement
This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are statements that are not historical facts and may include financial projections and estimates and their underlying assumptions, statements regarding plans, objectives and expectations with respect to future operations, products and services, and statements regarding future performance. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. Those factors include the factors indicated in our filings with the Securities and Exchange Commission (SEC). For more details, refer to our SEC filings and the amendments thereto, including our Annual Report on Form 20-F and Current Reports on Form 6-K. We undertake no obligation to update forward-looking statements to reflect subsequent occurring events or circumstances, or to changes in our expectations, except as may be required by law.
1 About BCOM
§ B Communications Ltd. is a holding company with a controlling interest
(approximately 30.6%) in Bezeq, The At A Glance
Israel Telecommunication Corp. Ticker BCOM (“Bezeq”), Israel’s largest Exchange NASDAQ & TASE telecommunications provider (TASE: BEZQ). Headquarters Ramat Gan, Israel Stock Price $26.00 § BCOM is a subsidiary of Internet Gold and 52 Week Range $13.34-$27.96 part of the Eurocom Group in Israel. The Shares Outstanding 29.9 Million Company, which was formerly known as 012 Smile Communications, went public Market Capitalization $777 Million on Nasdaq in November 2007. As of December 28, 2015
2 Investment Considerations
§ Owns a controlling stake in an asset with strong, consistent cash flow generation
§ Trades at a significant discount to Net Asset Value
§ Third consecutive quarter of dividend announcement as part of Company’s commitment to return capital to shareholders
§ Decreased net debt from more than NIS 5 billion in April 2010 (when BCOM acquired the controlling interest in Bezeq) to just NIS 2.4 billion as of September 30, 2015
§ Pushed out maturities in February 2014 by refinancing debt used to acquire stake in Bezeq through private placement of $800 million of senior secured notes
3 Dividend Distributions
§ In May 2015, the Company's board of directors declared a cash dividend of NIS 67 million (NIS 2.24 per share). The dividend was paid on June 16, 2015.
§ In August 2015, the Company's board of directors declared a cash dividend of NIS 22 million (NIS 0.73 per share). The dividend was paid on September 29, 2015.
§ On November 19, 2015, the Company's board of directors declared a cash dividend of NIS 38 million (NIS 1.27 per share). The dividend will be paid to all of the Company’s shareholders of record at the end of the NASDAQ trading day on December 10, 2015. The dividend was paid on December 23, 2015.
4 NAV Breakdown
* Based on the net finance debt as of September 30,2015. 5 NAV History
6 Experienced, Disciplined Leadership
Shaul Elovitch Founder & Chairman Over 40 years experience building leading Proven capabilities in: communications businesses and other major investments businesses • Strategy creation & strategic planning • Marketing & brand development • Operational & financial management • Management of mergers & acquisitions • Creation of partnerships Doron Turgeman • Capital raising: 13 major transactions CEO since 2011 & CFO from • 2 IPOs – IGLD and BCOM 2001 till 2011 • 10 bond issues 20 years experience in • $800 million Rule 144A offering management 18 years experience in communications
Chairman of the board of directors of Bezeq and it’s subsidiaries 7 088 130 -To be reflected in OM 088 190 Bezeq and B-Com are ultimately controlled by the Eurocom per LW’s comments 088 230 -CLM:South Clarify comment Group, the most experienced operator in the Israeli regarding Bezeq on-line
025 155 telecommunications field 170 215 255 210 Eurocom was founded in 1979 One of Israel’s largest holding companies with a strong presence in Israel and a growing international presence 210 250 Owned by Shaul Elovitch, Chairman of the Board of Directors (80% ownership) and Yossef Elovitch, Director 165 (20% ownership) Solid financial base and strategic partnerships support growth 255 235 Investments in telecommunications, satellite services, media, consumer electronics, real estate and additional fields 160
255 195 140
70% 255 165 Telecom Consumer Investments & Satellite Services Real Estate 150 Internet Gold (IGLD) Electronic Products Finance
67% Space Eurocom Real Eurocom Cellular Enlight energy Ltd. Communications Ltd. Estate Ltd. 205 Communications (Nokia) 190 230 B Communications (B-Com) Satcom Sys Ltd. Eurocom Capital Finance Eurocom Digital Ltd. 31% EITAG Ltd. Communications control (Panasonic) stake 170 130 Bezeq D.M. Engineering 085 Ltd.
Traded on TASE Traded on NASDAQ
8 Eurocom: Israel’s Largest Communications Footprint
9 Key Milestones for BCOM From small entrepreneurial business to large holding company
Ÿ Founded in 1999 under the name Goldtrade, operating in the field of e-commerce, as a subsidiary of IGLD, and as the operator of the e-commerce web site P1000 1999 Ÿ In 2004, IGLD increases its holdings in the Company to 100% Ÿ Restructure of IGLD into a holding company owning Smile Communications and Smile Media to Ÿ As part of the restructure Goldtrade changes its name to Smile Communications, transfers its e- 2006 commerce activities to Smile Media and receives IGLD's communications activities Ÿ Acquisition and merger with 012 Golden Lines to form 012 Smile Communications Ÿ Successful IPO and listing of 012 Smile Communications on NASDAQ and TASE (SMLC)
2007 Ÿ Continuous organic growth to Ÿ Crystallization of the strategy to become a leader in the Israeli telecom market 2009 Ÿ Preparation for the next major M&A transaction while examining several opportunities
Ÿ Sale of legacy 012 Smile Communications assets Ÿ Acquisition of the controlling interest in Bezeq – Israel’s telecom market leader 2010 Ÿ From April 2010 through September 2015, BCOM decreased its net debt from more than NIS 5 billion to NIS 2.4 billion. to Ÿ On February 19, 2014, BCOM announced the completion of an international offering of US$ 800 million 2015 senior secured notes that was used to fully refinance the bank and institutional debt that it incurred to acquire its controlling interest in Bezeq. Ÿ Focus on continuous deleveraging and creation of shareholder value 10 Group Structure
Eurocom Group Private
~70.4% • M.cap (Mil. NIS) - 826 ~29.6% Internet Gold • NAV(2) (Bil. NIS) - 2.3 Free float • Net debt (Mil. NIS) - 816 Golden Lines • Net debt / EBITDA – 4.91 • Listed - TASE, NASDAQ ~66.7% • M.cap (Bil. NIS) – 3.0 ~33.3% • NAV (3) (Bil. NIS) - 4.7 Free float BCOM • Net debt (Bil. NIS) – 2.4 • Net debt / EBITDA – 3.97 • Listed - TASE, NASDAQ ~30.6%
M.cap (Bil. NIS) – 23.5 ~69.4% • • TTM EV/EBITDA (4) - 7.6 Free float • Net debt / EBITDA (4) – 2.09 • Listed - TASE
Fixed-line, broadband 100% 100% Mobile telephony infrastructure, data com and data
100% 100% ILD, ISP, Call centre enterprise services solutions
100% 100% Pay-TV (DTH) Internet Walla! portal
Source: Company’s information, Bezeq’s investors’ presentation. (1) All figures are as of September 30, 2015. (2) IGLD’s NAV is defined as value of IGLD’s shares according to BCOM’s NAV, based on Bezeq stock price as of December 28, 2015, less IGLD’s net debt. (3) BCOM’s NAV is defined as value of BCOM’s shares according to Bezeq market cap, based on Bezeq stock price as of December 28, 2015, less BCOM’s net debt as of September 30. (4) Bezeq’s EV/EBITDA and Net Debt/EBITDA ratios are effected by the full consolidation of Yes financials as of March 26,2015. 11 BezeqBezeq,, OurOur BaseBase AssetAsset
12 088 130 088 190 088 230 Bezeq is Israel’s largest telecom group and the most comprehensive infrastructure and service provider 025 155 170 215 255 210
210 250 Bezeq Group 165 Market cap: NIS 23.5bn (as of December 28, 2015) LTM Revenue: NIS 9.6bn 5 255 LTM Adj. EBITDA : NIS 4.3bn 235 160 100% 100% 100% 100% Fixed-Line Cellular ISP, ILD and Pay-TV (DTH) 255 (Telephony, Broadband and Enterprise 195 Data Transmission) 140
(Pelephone) 255 165 2.2mm access lines/1.4mm 2.6mm subscribers Largest ISP with 42% market 638K subscribers broadband Internet lines 4 150 Among top three incumbent share Sole licensed DTH provider in #1 Fixed-Line telephony cellular providers with 26% 1 Offering full suite of data transfer, provider with 65% market market share Israel with 43% Pay-TV share network and ICT solutions for market share 205 #1 Broadband infrastructure small and large enterprises 190 provider with 65% market 230 share
LTM Revenue: NIS 4.4bn LTM Revenue: NIS 3.0bn LTM Revenue: NIS 1.6bn LTM Revenue: NIS 1.8bn 2 170 46% of total revenues 31% of total revenues2 16% of total revenues2 130 LTM EBITDA:NIS 573mm 085 LTM EBITDA: NIS 2.9bn LTM EBITDA: NIS 649mm LTM EBITDA: NIS 370mm 3 3 69% of total EBITDA 15% of total EBITDA 9% of total EBITDA3
Note: LTM results and KPIs as of 3Q ’15; Subscriber based market share data as of 3Q ’15 1 Company estimates; Captures private and business sector 2 Breakdown based on gross revenue (pre elimination of inter-company revenues) 3 Breakdown based on aggregate EBITDA generated by Bezeq Fixed-Line, Pelephone and Bezeq International (pre elimination of inter-company items) 4 Company estimates; Based on total broadband Internet infrastructure access services subscribers in the market 5 Adjusted EBITDA represents profit before income tax, share of loss of equity-accounted investee, financing expenses, net and depreciation and amortization. 13 088 130 088 190 Bezeq operates in an attractive macroeconomic 088 230 environment with unique characteristics 025 155 170 215 255 210 The Israeli economy benefits from positive fundamentals as reflected in its A+/A1 (stable)1 sovereign credit rating 210 250 Consistent high GDP growth...... with strong underlying population growth 165 Real GDP (rebased to 100) % Population 1.8% 1.9% 1.8% 1.9% 1.9% 2.0% Israel Eurozone USA growth in 190 2000-2012 +3.4% +1.0% +1.7% Israel Israel population CAGR 255 170 8.3 2012-2016E 7.8 8.0 8.1 235 150 +3.9% +0.8% +2.3% 7.6 7.7 160 CAGR 130 110 255 90 195 0 1 2 3 4 5 6 7 8 9 0 1 2 E 2009 2010 2011 2012 2013 2014 140 00 00 00 00 00 00 00 00 00 00 01 01 01 16 2 2 2 2 2 2 2 2 2 2 2 2 2 20
The Israeli telecommunications market is growing ...and Bezeq is the largest player in the market with the 255 165 alongside the growth in population... largest revenue share 150 % of total market revenue Partner Duopoly in infrastructure market with Bezeq Aggregate 1,940 2,007 2,077 and HOT as sole owners of fixed-line mobile, 1,818 1,879 Group, infrastructure 205 broadband 190 internet and 18% Bezeq fixed-line 9,411 9,372 9,616 9,682 10,020 Group, High penetration and usage rates across all 230 telephony lines 2 Cellcom telecommunications services ('000s) 45% Group, Technology driven market with rapid 3,453 3,543 3,514 3,508 3,499 170 19% adoption rate of new technologies 130 HOT, 085 2010A 2011A 2012A 2013A 2014A 17% Strong brand appreciation and loyalty with high premium Total fixed line subscribers Total 2014 revenue: $6.1bn3 Relatively young population Source: EIU; Israel Central Bureau of Statistics; Company data; Public filings for competitors’ dataTotal mobile subscribers 1 Indicates credit rating and outlook by S&P / Moody’s 2 Mobile subscribers based on total UMTS subscribers for all MNOs; Broadband internet subscribers based on Bezeq and HOT subscribers; Fixed-Line telephony lines based on Bezeq, Total broadband subscribers HOT, Cellcom, Partner and other operators 3 Based on aggregate revenues of the 4 largest telecom groups: Bezeq (incl. YES), HOT, Cellcom and Partner; USD/NIS conversion based on exchange rate of 3.889 as of December 31, 2014 14 088 130 088 190 Bezeq is the historical incumbent and since its 088 230 privatization in 2005 has been controlled under a
025 155 Control Permit attached to the 30% stake 170 215 255 210 History and milestones
210 250 1984 19901990 20052005 2009 20102010 2012 2013 2014 165
Listing on the TASE B-Com acquires the Bezeq Fiber deployment reached 1,000,000 255 control stake from Apax- International households 235 Saban-Arkin for NIS 6.5bn launches its 160 Pelephone launches High Speed 4G Privatization of Bezeq submarine cable services Apax-Saban-Arkin Wholesale regulation approved Bezeq begins operating as a 255 consortium purchases the governmental company control stake for NIS 195 responsible for all 4.2bn 140 communications services in Israel
255 Bezeq launches the NGN network Stella Handler appointed CEO of Bezeq (Fixed-Line) 165 Pelephone launches High Speed GSM+ network 150 Board approves dividend policy of 100% of net FTTH/FTTB deployment income underway (BFIBER)
205 190 Control permit 230 Control in Bezeq is held by holders of a pre-approved permit from the Israeli Prime Minister and the Ministry of Communications (“Control Permit”) 170 130 Only a party that holds a Control Permit may exercise its holdings in such a manner as to direct the activities of Bezeq 085 B-Com is the only shareholder that has a permit to direct the activities of Bezeq
B-Com has nominated all of the members of Bezeq’s board of directors who were elected by shareholders1
B-Com consolidates Bezeq’s financial statements based on its de-facto control of Bezeq
Source: Company information 1 Excluding employee representatives on the Board whose nominations require the prior approval of our ultimate controlling shareholder, Mr. Shaul Elovitch, as chairman of Bezeq’s Board of Directors, pursuant to Bezeq’s collective bargaining agreement 15 088 130 088 190 Bezeq’s leading position is supported by its fully owned 088 230 advanced network infrastructure and technology
025 155 across all lines of business 170 215 255 210 Bezeq Fixed-Line Pelephone 210 250 Extended optical fiber deployment underway – Bfiber Fast and advanced network (FTTH/FTTB) 165 Rolling out High Speed 4G network , using LTE Fiber rollout is on track to reach 1,300,000 households by technology. end of 2015 In 2015 majority of the population will enjoy 4G 255 235 The only fixed-line company with a nationwide fiber coverage 160 network Covers substantially all of Israel with 2 switch farms connected to approximately 2,200 sites Implementing VDSL and vectoring technologies The network performances expected to upsurge 255 Highly advanced nationwide NGN network that has led to following the LTE frequency tender 195 impressive achievements 140 Average speed among Bezeq subscribers has increased from 24.0 Mbps in Q3 2014 to 36.7 Mbps in Q3 2015 255 Bezeq International YES 165 150 Advanced infrastructure following the launch of submarine cable in 2012 (“Jonah”) Pioneer in HD broadcasting, advanced set-top box Among the most advanced in the world (40G upgradable to 100G) combining PVR, VOD & HD, and streamer 205 Key differentiator over competition Leader in value added services based on Hybrid 190 Only Israeli ISP to own an international infrastructure satellite-IP platform and Progressive Download 230 technology Increased capacity and Internet performance Potential revenue streams from future sale of additional cable capacity Launched “yes Multiroom” service (first in Israel) 170 Full cable redundancy Recently launched “yes Go” - TV Everywhere service 130 (first in Israel) 085 Marseille Sofia Istanbul Thessalonica Rome Bari Jonah cable Ariel cable Athens Palermo Catania Chania Cypru s Israel Haif a Tel-Aviv Jordan 16 088 130 088 190 Bezeq Fixed-Line is the leading company in 088 230 Telephony, Broadband and Data Transmission
025 155 Services 170 215 255 210
Bezeq has been consistently increasing its market share in ...and broadband ARPU1 continues to increase and drive 210 the broadband infrastructure market... revenues 250 Broadband 165 Bezeq market 60.3% 62.9% 65.7% 67.6% ’12- 3Q ’15 LTM share (%) revenues 1,166 1,287 1,394 1,519 CAGR: 10.1% (NIS mm) 101 94 255 84 Growth in 87 235 67 70 81 84 84 Bezeq 58 61 ARPU (NIS) 160 51 broadband subs (000's) HOT’s ARPU 62 72 62 51 255 195 140 2012A 2013 A 2014 A 9M 2015A 2012A 2013A 2014A LTM Sep 15 255 Growth in 165 Sincetotal 2012 the number of telephony lines has decreased ...and the decline which characterized 2012-2013 has 150 moderatelybroadband and remained meaningful... abated during 2014 and nearly stopped market subs Bezeq access lines (000's) net adds (000’s) 205 190 230 3 0 0 -4 -9 170 Bezeq access -11 130 lines (000’s) 2,268 2,216 2,205 2,193 085
2012A 2013A 2014A 3Q 2015A 2Q 14A 3Q 14A 4Q 14A 1Q 15A 2Q 15A 3Q 15A
Source: Company data and competitors’ public filings 1 Average revenue per user not including revenues from data communications and transmissions services, internet services, services to communications providers, and contract and other services. Based on average subscribers for the period. 17 088 130 088 190 088 230 Pelephone presents the smallest net subscriber loss 025 155 170 215 255 210
Pelephone emerged with high ARPU following the …recording the smallest net subscriber loss over the 210 turmoil in the Israeli mobile market... period... 250 ARPU by operator (in NIS) 165 ’12 – 3Q‘15 Subs (000’s) ’13 – Q3‘15 change Partner Cellcom Pelephone New MNOs enter 97 Pelephone Cellcom change the market 255 95 86 88 83 Partner 235 78 2,642 (73k subs) 79 2,586 2,565 2,566 2,569 160 75 69 70 72 71 (28.4%) 68 (260k subs) 65 65 65 65 66 3,092 2,967 2,885 2,848 2,832 (25.0%) 255 (26.8%) 2,956 2,837 2,774 2,747 2,740 (216k subs) 195 140 2012A 2013A 2014A 1Q 15A 2Q 15A 3Q 15A 2013A 2014A Q1 15A Q2 15A Q3 15A
255 165 ...and by implementing efficiencies that led to …it was able to support high EBITDA margins relative 150 improved cost base... to peers EBITDA margin of total mobile revenues (%) ’12 – 9M ‘15 205 3,576 3,201 change 190 Pelephone Cellcom Partner 2,970 2,792 230 Pelephone 1 32% Opex 30% 28% 170 (NIS mm) 29% 27% 26%26% 21% 130 (11p.p.) 22% 21% 19% 085 14% (10p.p.) (15p.p.) 2012A 2013A 2014A LTM Sep 2012A 2013A 2014A 9M 2015 2015 Source: Company data and competitors’ public filings 1 Calculated as total revenues less operating profit 18 088 130 088 190 088 230 Bezeq International is the leading ISP, ILD and business solutions provider 025 155 170 215 255 210 …and Bezeq International has been outgrowing peers The ISP market has been growing consistently with and successfully increasing its market share in the ISP 210 the broadband infrastructure market... market 250 165 Total broadband Bezeq international ISP infrastructure subs market share (%) (000’s) 1% 2,140 255 3. 3.4% 2,075 235 5% 3. 2,007 160 1,940
255 40.6% 42.0% 195 37.5% 38.9% 140
2012A 2013A 2014A Sep 2015 2011A 2012A 2013A 2014A 255 165 ...offsetting decline in ILD and allowing it to maintain 150 ISP, ICT and data are Bezeq International’s growth overall stable EBITDA level and margin despite engines... competition
205 EBITDA 26.5% % of total Bezeq 71.4% 72% 73.7% 24.9% 190 International margin (%) 24.1% 23.6% 230 revenues Bezeq 357 370 1,109 International 350 362 1,032 EBITDA 170 ISP, ICT and data 957 (NIS mm) 1 130 revenues 085 (NIS mm)
2012A 2013A 2014A 2012A 2013A 2014A LTM Sep 2015 Source: Company data and competitors’ public filings 1 Total revenues excluding ILD revenue 19 088 130 088 190 088 230 YES (Multi Channel Satellite TV - DTH) presents sustained growth in market share 025 155 170 215 255 210 YES’s unparalleled content offering continues to be a key differentiator vs. HOT...... while maintaining stable ARPU despite premium pricing 210 250 Which company broadcast the best 8 wins in “docaviv 1 165 content? YES ARPU festival” 2014 (NIS) 233 234 232 230 232 47 wins in the 2014 255 Emmy awards (films, 235 series and 160 Documentaries films)
7 out of the 10 most 255 watched series in the 195 US are broadcasted on yes HOT 140 yes. 2013A 2014A 1Q 15A 2Q 15A 3Q 15A
255 165 Growth in subscribers and market share continues… 150 YES Market 41% 41.2% 42% 42% 42.8% .433% share % 205 190 Net growth in Pay-TV market (000’s subs) 230 6 9 YES 6 10 2 4 1 2 170 (12) (9) (8) (10) 130 HOT (3) 085 (7) Q1 Q2 Q3 Q4 Q1 Q2 Q3 2014A 2014A 2014A 2014A 2015A 2015A 2015A
Source: Company data and competitors’ public filings 1 According to TNS Israel, September 2014, conducted at yes’s request
20 Bezeq Financials (NIS Millions)
Revenues EBITDA
Net income attributable to shareholders Free cash flow *
Source : Bezeq’s press release * Free cash flow is defined as cash flows from operating activities less net payments for investments 21 Bezeq’s Dividend Policy distribution of 100% of its net income on a semi-annual basis
Dividend Yield from 2006 to 2015
Dividend yield (%) Bezeq Group Dividends by Year (NIS MM) 8,000 25.00% 21.90% 7,000 19.40% 20.00% 6,000 16.10% d l d 14.90% e i
n 5,000 Y
e 15.00% 13.40% d d i 12.30% n v i 4,000 e D 10.50% d 9.80% i v
9.30% i 9.10% 3,733 10.00% 3,000 D 1,000 1,000 1,800 1,000 2,000 2,155 2,071 2,069 5.00% 1,941 1,830 1,777 1,600 1,000 1,514 1,060 0 0.00% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015* Special Dividend Dividend Dividend Yield Source: Bezeq
* Dividend Yield is based on average market cap during the period
• Based on its ownership interest, BCOM will receive ~ 31% of Bezeq’s annual dividends
• Since 2006, Bezeq has paid over NIS 24.5 billion (US$ 6.3 billion) in dividends
22 BCOMBCOM FinancialsFinancials BCOM Solo P&L (NIS Millions)
24 BCOM’s Cash Position
As of September 30, 2015, BCOM’s unconsolidated liquidity balances totaled NIS 1.2 billion and its unconsolidated total financial liabilities totaled NIS 3.6 billion.
25 BCOM Solo- Assets (NIS millions)
26 BCOM Solo - Liabilities (NIS millions)
27 BCOM During Last 21 Months
28 BCOM’s Debt Repayment Schedule (NIS millions)
• All amounts include future estimated interest payments 29 Reduction in BCOM’s Net Debt From the Bezeq acquisition until September 2015 (NIS Millions)
30 Notes Repurchase Program
§ On August 10, 2014 the Company’s Board of Directors has approved the buyback of up to $50 million of its Notes.
§ Through December 28, 2015, the Company purchased $27 million par value of the notes.
31 The The BezeqBezeq Era Era
Thank you
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